Personal Finance

Top 10 Questions You Should Ask Your Retirement Financial Advisor

Ask these questions before choosing your advisor

Whether you’re starting to save for retirement or have been investing for years, it can be a smart decision to turn to a professional for guidance. But before choosing one, here are 10 questions to ask a financial advisor about retirement.

  • A financial advisor can make recommendations and provide guidance to help you plan for your retirement.
  • You pay an investment advisor at an hourly rate (fee-only advisers), a fixed annual retainer, or a percentage of your assets.
  • Make the effort to find the right financial advisor – you could work with them for years.

Before deciding on a financial advisor, make sure you get the services you need and the advice you need. The best way to do this is to ask the right questions. If the answers are unsatisfactory or incomplete, you may want to keep searching. Your withdrawal is too important to be left to chance.

1. Are you a fiduciary?

“Fiduciary duty” is a legal term that means that one party has an obligation to act in the best interest of the other party. You want your advisor to guide you toward investments that are in your best interest, not theirs. It’s great if the two match, but yours should come first. Hint: Honorary advisors are more likely to assume fiduciary duty than those who work on committees.

2. How do you make money?

There is nothing wrong with receiving payment for experience and service. At the same time, you need to know who you are working with and how they are paid. It is important that you get value and experience that exceeds what you are paying for. If you work with a good retirement financial advisor, this shouldn’t be too difficult. There are many ways to lower your taxes, plan your wealth, create a suitable retirement asset allocation, and help you generate lifetime income to live in retirement. Good retirement advice should more than offset the fee.

3. What is your investment philosophy?

This is the most basic question and any retirement adviser should be able to answer it without hesitation. You must know the discipline behind investment strategies and how those strategies will help you achieve an annual return designed to meet your investment objectives. All of this should be provided in simple terms that you can understand. Additionally, you should receive information designed to ensure that you understand and can navigate the tax laws and avoid emotional responses to market fluctuations.

4. What do you like about your job?

No matter what type of professional you are looking for, it is helpful to find someone who likes your job, and who is not just setting the time. Ideally, your financial advisor will enjoy helping people and have a passion for everything related to finances, whether it helps you budget, pay debts, manage health care costs, develop tax strategies, generate wealth, and make sure you have sufficient retirement income.

Body language says a lot. Does the advisor make eye contact with you, smile, and use hand gestures while speaking (that’s good)? Or are they slumped in a chair, distracted and looking at your phone (that’s a red flag)?

5. What services do you provide to your clients?

Your financial advisor should offer services that will help you solve the problems you may face during retirement. That includes helping you:

  • Calculate how much you need to retire and set savings benchmarks to get there
  • Choose investments that match your risk tolerance and time horizon
  • Develop a long-term investment strategy
  • Rebalance your investment portfolio
  • Manage your expenses now and during retirement
  • Make plans for long-term care
  • Create a favorable tax strategy

6. How will I compensate you?

It is important to know in advance how you will compensate a potential retirement adviser. You should ask if you will pay per hour, per transaction, or annually, based on the value of your assets. Other advisors may be compensated through commissions on the products they provide.

This does not mean that you should necessarily avoid someone who charges more. A high-priced advisor may well be worth the fee you pay if the results are valuable to you. However, beware of commission-based compensation, as it could mean that the advisor will guide you to purchase products at higher rates.

7. What happens to my money if something happens to you?

Your advisor should be able to answer this question in enough detail to be sure that there is an exit plan if you retire, leave the company for another job, or are unable to continue serving. You must know how your financial affairs will be handled and who will manage them.

8. Does your company retain my money and investments?

Your financial advisers should not contact your assets (except for the fees you pay for their services). Instead, the advisor must hire an accredited custodian, who could be a third party or owned by your company.

The custodian retains your assets and will also process transactions, collect dividends and interest payments, make distributions, and produce monthly account statements.

9. How will we touch the base of my investments?

You should expect at least quarterly contact. Monthly it is even better. Your advisor must explain each purchase or sale transaction, and must provide periodic reviews of the status of your portfolio, including educational resources, if applicable (or upon request).

10. Is there something I forgot to ask you?

Ending an interview with this question can be very revealing. Even if you think the answer is no, you can demonstrate a level of commitment to a potential financial advisor. Still, there is a chance that something was missed during your conversation, and this is a good time for the advisor to mention something important.

The bottom line

Asking the right questions and listening carefully to the answers you receive helps you decide if there is a good match. If you are part of a couple, both partners should be comfortable with the financial advisor. Philosophy, fees, qualifications and more come into play. Remember, choosing a retirement advisor is not an easy task. You may have to interview multiple candidates before finding the right one.

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